My First BURRR on a STVR: It's Possible

[Mike V.]

Just wanted to share a quick success story.  I focus on short term vacation rentals in Hawaii.  I enjoy self managing and have acquired several over the years.  I purchased a 3 bed 2 bath about 2 1/2 years ago for $485,000 (30% down, $145,500) from an original owner and it needed a ton of work.  I purchased it, with my intention being to remodel it and throw it in my rental portfolio.  I spent roughly $80,000 and essentially did a full remodel.  All in costs roughly $235k.

6 months ago I asked my local realtor his opinion on it's value. He said around 800k. I messaged my lender who i've made several deals with and she started the refi process. 3 months later we closed with the appraised value of 795k, allowing me to pull out close to 250k. Once the transaction completed I used the 250k to add an additional beautiful condo to my growing collection. I'll net 20+% CoC ROI on the new property (250k down), and i'm still at about 14% on the one I refi'd with the new higher payment.

There were a lot of hurdles, as it was classified as a condotel that I needed to have reclassified, and a few other weird hoops I had to jump through, but at the end of the day I actually pulled out more money than I put in to the first condo to pay for the second, and now I have two very high performing condos using my original 235k.  

I've read in these forums that BRRRR won't work on STVRs (banks wont do it) and I just wanted to share this, so those who might have equity can consider doing it to.

[Mike V.]

Thanks @Mala S.!

1.  The appraised value has nothing to do with it's use.  Not affected at all.

2.  It was a conventional 30 year fixed at 5%.  The only differences I noticed was that since it's a STVR the bank did make the appraiser provide their estimated long term rental value and that is what they based the rental income on, not the STVR numbers even though I was able to provide 2+ years of history.  I also had to get an 'investor loan' which, from everything I can tell, is the exact same as a regular loan just 1/2 point higher rate.

3. Since I did the Cash Out Refi it needed to be an actual mortgage, since the refi paid off the balance of my old loan. I supposed instead of the cash out refi I could have explored the HELOC. I didn't really consider it so I don't know.

Overall, it really wasn't that hard and it felt exactly like a new purchase, but with a few more hoops to jump through on the loan documentation side.  I haven't found many people who were able to accomplish this, so I wanted to share.